Australian Dollar, AUD/USD, Market Sentiment, Yields – Talking Points
- The Australian Dollar gained overnight versus the US Dollar as risk-on flows increased
- Asian stocks may extend rally after US stocks pace higher alongside Treasury yields
- AUD/USD looks primed to test the October 2021 high after a bullish SMA crossover
Wednesday’s Asia-Pacific Outlook
Asia-Pacific markets look set for another positive day of trading after US stocks pushed higher, and AUD/USD set a fresh 2022 high. Treasury yields advanced for a second day as rate traders moved to price in a growingly hawkish shift in Federal Reserve rate hike bets. Markets are now anticipating a 50 basis point hike at the FOMC’s May meeting. Federal Reserve Governor Loretta Mester was the latest official to signal a more aggressive monetary policy outlook. The 2s10s Treasury curve rose back above 22 basis points overnight, which may have helped ease recession fears.
Hong Kong’s Hang Seng Index (HSI) jumped over 3% on Tuesday, although the index remains nearly 5% below its monthly high. The positive performance comes despite China’s hesitancy to provide more monetary support this week by holding loan prime rates steady. However, analysts still expect to see several easing moves from the People’s Bank of China in the coming months.
Australia’s 10-year government bond yield fell overnight but not before hitting the highest level since June 2018. The Australian Dollar is likely to continue benefiting from rising yields, as it could push the Reserve Bank of Australia (RBA) to firm up its outlook. That would benefit the Australian Dollar, adding to the currency’s tailwinds, which include rising commodity prices and the risk-on market shift.
New Zealand’s Prime Minister Jacinda Ardern said this morning that the Omicron outbreak in Auckland has peaked. Ms. Ardern also announced the rollback of several Covid restrictions, including outdoor gathering limits. NZD/USD rose over 1% to its highest level since November 23, 2021. Today’s economic calendar is light, but Thailand’s trade balance (Feb) and Japan’s coincident index are scheduled to cross the wires. Meanwhile, the situation in Ukraine remains tense with no end in sight. President Biden will visit Poland on Friday as the US reportedly readies a new round of Russian sanctions.
AUD/USD Technical Forecast
AUD/USD is pushing into fresh 2022 highs this morning. The 0.7500 level may provide some resistance, but prices may climb to test the October 2021 high at 0.7556 if the current momentum holds. The MACD oscillator is strengthening and the 20-day Simple Moving Average (SMA) crossed above its 200-day SMA earlier this week, both bullish signs. Alternatively, a pullback to the 78.6% Fibonacci retracement level may be on the cards if bulls let off the gas.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter